What is a Fund of Funds Model?
A Fund of Funds (FOF) is an investment structure where you raise capital from investors—not to buy assets directly—but to invest into other funds or syndications. Instead of managing real estate, startups, or debt deals yourself, you deploy capital into deals led by other operators.
In short? You become a capital allocator, not an asset manager.
Raising capital—but not ready to manage deals end-to-end? Want to scale—but hate asset management headaches?
Enter: Fund of Funds (FOF)—one of the smartest (and most underrated) capital-raising models in 2025.
At Avestor, we’ve seen more fund managers adopt this structure to unlock scale without operational overload. In this blog, we’ll break down exactly how the model works, when to use it, and how to build a high-performing capital strategy around it
The Basic Structure (How You Actually Set It Up)
Let’s say you want to raise $2M from your investor base and deploy it across 3–4 multifamily deals run by other operators.
Here’s what that setup looks like:
Steps -
- Entity Formation
You create an LLC or LP (let’s call it XYZ Capital Fund I). This is the entity your investors invest in.
- Legal & Compliance
You file an exemption under Regulation D (typically 506(b) or 506(c)) with the SEC and prepare a PPM, subscription docs, and an operating agreement.
→ If you’re using Avestor, much of this is built into the platform.
- Capital Raise
You raise from your network. Each investor owns a slice of your fund (not the underlying properties).
- Capital Deployment
Once you hit your raise target, you invest in 2–4 sponsor-led deals. You negotiate better terms based on your check size and pass those benefits to your investors.
- Ongoing Management
You handle investor relations, reporting, distributions, and deal oversight. But the underlying sponsors handle day-to-day asset management.
How Do Returns Flow to Your Investors?
Returns from the underlying funds flow into your entity (XYZ Capital Fund I), and then you distribute them to your investors based on their ownership in your fund.
What are the Pros and Cons of FOF Model?
Who Is the FOF Model Most Suited For?
Final Thoughts: This is Capital Raising in 2025
In 2025, more investors are chasing alternatives. More sponsors are looking for larger checks.
The Fund of Funds model sits right at the intersection:
- Deliver better terms to investors
- Scale without running your own deals
- Keep overhead light, and income flowing
And when paired with Avestor’s Customizable Fund™ structure, you don’t need 6 months and $50K in legal fees to launch it.
You just need the right strategy.
Curious if a Fund of Funds is your next move?
Let’s break it down together.
